Does The Business Judgment Rule Protect Directors Who Violate Governing Documents?

Under the business judgment rule, a director will not be liable for a mistake in business judgment provided that certain conditions are met.  In the case of a California nonprofit mutual benefit corporation, a director who performs her duties in accordance with Corporations Code Section 7231(a) and (b) has no liability based on any failure

What Is A Knowing Violation Of Law?

Nevada’s private corporation law automatically exculpates directors and officers from individual liability from individual liable to the corporation or its stockholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that: The director’s or officer’s

Genealogy And The Corporate Lawyer

Who is family and how close are they?  These aren’t questions that typically occupy the mind of a corporate lawyer.  Occasionally, however, consanguinity matters even to a corporate lawyer.  Thus, Section 308 of the California Corporations Code authorized the Superior Court to appoint a provisional director (or directors) when there is either a deadlock on the

Court Holds Inspection Statute Does Not Require That Records Be Brought To California


In “The Scope Of Stockholder Inspection In California And Delaware“, I wrote about what a shareholder is entitled to inspect under California’s shareholder inspection statute – Corporations Code Section 1601.  I did not discuss where that inspection must occur, a question addressed yesterday by the California Court of Appeal in Innes v. Diablo Controls, Inc.

Drafting Bylaws – Four Things To Consider


Four points to consider when drafting these often crucially important, but tiresome, documents: Distinguish among Shall/Will/Must. I often cite Bylaws as an example of how “shall” may sometimes mean “must” while other times may mean “may”.  See When Shall/Will/Must/May We Meet Again? Remember the Articles!  Occasionally, I come across bylaw provisions that are inconsistent with the articles of incorporation. 

As Delaware Goes, So Goes Washington?

In a posting yesterday, Professor Stephen Bainbridge poses the question “When an acquirer spots red flags: Should Microsoft’s board beware?” He points out: Numerous Delaware cases (mostly arising in the oversight context, of course) hold that independent directors will be liable for acting in bad faith only when they ignore alleged “red flags” that are “either waved

The Scope Of Stockholder Inspection In California And Delaware

Don’t peek at the statute, and answer the following question: A stockholder of a Delaware corporation has a statutory right to inspect a corporation’s (a) books of account; (b) accounting books and records; or (c) other books and records. If you answered “a”, you would be correct under former Section 3003 of California’s former General

When Someone Is Missing, Is Consent Unanimous?

The word “unanimous” is derived from two Latin words, unus (meaning one) and animus (mind).  Thus in Plautus’ play, the servant, Stichus, tells his friend, Sagarinus: “ego tu sum, tu es ego, unianimi sumus (I am you and you are I, we are of one mind)”.  T. Maccius Plautus, Stichus Act V, sc. 4:49. Under the California General Corporation Law, directors

Will The Rise Of Tweener Corporations Increase Focus On California’s Annual Report Statute?

Earlier this week, The Wall Street Journal published two articles by Rolfe Winkler concerning shareholder access to financial information in companies not subject to the reporting requirements of the Securities Exchange Act of 1934.  In one of these pieces, Mr. Winkler describes California’s annual report requirement found in Corporations Code Section 1501. In general, Section 1501

Who Decides Whether A Shareholder Has Complied With An Advance Notice Bylaw?

UCLA Professor Stephen Bainbridge asked the following question concerning advance notice bylaw provisions in “The Professor is Stumped: Today’s Corporate Law Question“: When an incumbent board of directors claims that a potential proxy insurgent has failed to comply with an advance notice bylaw, who decides whether the bylaw has been satisfied? The board (subject to